Zero Hedge: Remember Ray Dalio’s “Depression” Warning: This Is Where We Stand Now

Zero Hedge: Remember Ray Dalio’s “Depression” Warning: This Is Where We Stand Now
In recent weeks, Ray Dalio – a vocal proponent of QE4 and certainly against any form of monetary tightening – has been about as doom and gloomy as we have ever heard the head of the world’s biggest hedge fund. Just last week, we reported that the founder of Birdgewater, when speaking before the New York Fed, voiced his latest warning about the potential losses that would befall asset holders if interest rates rose by just 1%. Recall from his speech that “if interest rates rise just a little bit more than is discounted in the curve it will have a big negative effect on bonds and all asset prices, as they are all very sensitive to the discount rate used to calculate the present value of their future cash flows. That is because with interest rates having declined, the effective durations of all assets have lengthened, so they are more price-sensitive.”
And the punchline:
… it would only take a 100 basis point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash. And since those interest rates are embedded in the pricing of all investment assets, that would send them all much lower.
Using a Goldman calculation which we showed earlier in the year, we estimated that the impact of a 100bp shock to interest rates – the same one that Dalio envisions – and assuming a total US bond market size market size of $40trn, in line with estimates…